“Interest expense relative to average interest bearing liabilities has contracted by a further 19 bps to 2.79%, an all-time low observed by this survey, as the OCR of 1.75% remains at its lowest point since the RBNZ adopted it in 1999,” KPMG says.

More broadly, the FIPS has found the banking sector experienced a slight dip in profits in the March quarter, in contrast to the previous quarter when it bounced back from two successive quarters of decreases.

The sector’s net profit after tax decreased 2.85% to $1.20 billion.

KPMG’s Head of Banking and Finance John Kensington says the overall dip in profits is “just a recognition of the competition in the market, the slightly uncertain geopolitical times and a reflection on the NZ economy as a whole: resilient, going well, but not booming.”

The decrease in profits was attributed to a reduction in both net interest income and non-interest income, as impaired asset expense increased.

Operating expenditure control continued to be a strong focus for the sector, with operating expenses reducing $34.11 million.

Gross loans and advances remained relatively stable with only a $4.59 billion (1.19%) increase, the slowest quarterly increase for three years.

Despite slightly larger loan books, interest income for the quarter was down 2.46% ($124.30 million), showing that competition for quality lending is still healthy.

“We’ve seen the industry continue to focus on quality lending, which has led to a decrease in total provisioning levels. This indicates the banks are generally confident in the quality of their loan books at the moment,” Kensington says.

KPMG says the regulatory landscape remains busy with further promulgations and announcements across a range of topics including dashboard reporting, debt to income ratios, outsourcing, dual registration and the Capital Review, all this at a time where there is increased focus on conduct and customer-centricity coming from sector participants and regulators alike.

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I'm not sure if I'm the man or the dog who had a go at you,but I had good reason. You very recently posted/boasted of your knowledge of bank funding and then baldly asserted that their WACC was under 5%. When challenged,you rapidly backtracked,so I believe I am entitled to question just how deep your knowledge really is.
I am not here to defend the banks and I think it is regrettable that none of the major banks are domestically owned. It is almost inevitable therefore that the parent companies will treat their subsidiaries as cash cows. However,I would like to know just what you consider to be an acceptable level of return for our banks. Your detailed knowledge should allow you to answer that.

I too was privy to that thread.
Boatman had a very interesting way of calculating said WACC, also I recall.

You ask a good question, in that what an acceptable level of return is for banks.
Everyone is far to quick to moan about nominal returns, but often have little understanding of the dynamics of the institutions.

... the world's biggest hedge fund sounded an identical end-of-an-era warning ( to Citibank's). Central bankers were now reducing the supply of that intoxicating liquidity that for so long has pushed asset prices higher, and driven interest rates lower....'... that should say something to you about the risk that might mean because we've never lived with it before.'...we now find ourselves "at the end of that nine-year era of continuous pressings down on interest rates and pushing out of money that created the liquidity-fuelled moves in the economies and markets...the odds of a market crash are rising as the global economic cycle slows - the auto, commodity, industrial and retail sectors are all showing signs of stress - at a time time when strong US jobs growth leaves the Fed with no option but to reduce its monetary stimulus. "In every previous such down cycle for the last ten years, central banks have responded by printing money. But this time, they are doing the reverse, which must, one thinks, exacerbate the trend."....Investors, however, are failing to heed flashing warning signs..."to my mind, we have finally globally hit the peak of the cycle. A peak we hit in 1979, 1989, 1999, 2008 and now. Can you see it?"

I'm a bit confused,
- cost of source of bank funding has decreased
- revenue to banks from interest earned has also decreased
Which has decreased more ? Have the banks become more profitable or less profitable Jenee ?

Yes ocelot, and funny how the RBNZ aren't moaning about the banks moves, RBNZ lower with banks higher could save some banks in the near future and the RBNZ are part of this, didnt American do a similar thing after the GFC,

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